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Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q26. What are definitions of “Foreign Subsidiary”, “Foreign Associate” and “Special Purpose Vehicle” +

Ans:

Foreign Subsidiary: An Indian entity is called as a Foreign Subsidiary if a non-resident investor owns more than 50% of the voting power/equity capital OR where a non-resident investor and its subsidiary(s) combined own more than 50% of the voting power/equity capital of an Indian enterprise.

Foreign Associate: An Indian entity is called as Foreign Associate if non-resident investor owns at least 10% and no more than 50% of the voting power/equity capital OR where non-resident investor and its subsidiary(s) combined own at least 10% but no more than 50% of the voting power/equity capital of an Indian enterprise.

Special Purpose Vehicle: A special purpose Vehicle (SPV) is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfil narrow, specific or temporary objectives. SPV have little or no employment, or operations, or physical presence in the jurisdiction in which they are created by their parent enterprises, which are typically located in other jurisdictions (economies). They are often used as devices to raise capital or to hold assets and liabilities and usually do not undertake significant production.

Domestic Deposits

III. Advances

26. What is the meaning of the word ‘Free’ in the lending rate prescription? +

Banks are free to fix Benchmark Prime Lending Rate (BPLR) for credit limits over Rs.2 lakhs with the approval of their respective Boards. BPLR has to be declared and made uniformly applicable at all the branches. The banks may authorize their Asset-Liability Management Committee (ALCO) to fix interest rates on Deposits and Advances, subject to their reporting to the Board immediately thereafter. The banks should also declare maximum spread over the BPLR with the approval of the ALCO/Board for all advances.

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

Money Transfer through UPI/ IMPS

26. Can I withdraw my money from my Paytm Payments Bank account through UPI/ IMPS after March 15, 2024? +

Yes. You can withdraw your money from Paytm Payments Bank account through UPI/ IMPS upto the balance available in your account.

Government Securities Market in India – A Primer

26. How is the yield of a T- Bill calculated? +

It is calculated as per the following formula

Foreign Investment in India

Q.26: What if the Capital Instruments are not issued within the stipulated time period ? +

Answer: If the capital instruments are not issued by the Indian company within sixty days from the date of receipt of the consideration, the amount so received has to be refunded to the person concerned by outward remittance, through banking channels or by credit to his NRE/ FCNR (B) accounts, as the case may be, within fifteen days from the date of completion of sixty days.

Indian Currency

C) Different Types of Bank Notes and Security Features of banknotes

6. What are the Security Features of banknotes in circulation? +

The security features in MG Series 2005 and MG (New) Series banknotes are as under:

i. Security Thread: The silver-coloured machine-readable security thread in ₹10, ₹20 and ₹50 denomination banknotes is windowed on front side and fully embedded on reverse side. The thread fluoresces in yellow on both sides under ultraviolet light. The thread appears as a continuous line from behind when held up against light. ₹100 and above denomination banknotes have machine-readable windowed security thread with colour shift from green to blue when viewed from different angles. It fluoresces in yellow on the reverse and the text will fluoresce on the obverse under ultraviolet light.

ii. Intaglio Printing: The portrait of Mahatma Gandhi, Reserve Bank seal, Guarantee and promise clause, Ashoka Pillar emblem, RBI’s Governor's signature and the identification mark for the visually impaired persons are printed in intaglio in denominations ₹100 and above.

iii. See through register: On the left side of the note, a part of the numeral of each denomination is printed on the obverse (front) and the other part on the reverse. The accurate back-to-back registration makes the numeral appear as one when viewed against light.

iv. Water Mark and electrotype watermark: The banknotes contain the portrait of Mahatma Gandhi in the watermark window with a light and shade effect and multi-directional lines. An electrotype mark showing the denominational numeral in each denomination banknote also appears in the watermark widow and these can be viewed better when the banknote is held against light.

v. Colour Shifting Ink: The numeral 200, 500 & 2000 on the ₹200, ₹500, and ₹2000* banknotes are printed in a colour-shifting ink. The colour of these numerals appears green when the banknotes are held flat but would change to blue when the banknotes are held at an angle.

vi. Fluorescence: The number panels of the banknotes are printed in fluorescent ink. The banknotes also have dual-coloured optical fibres. Both can be seen when the banknotes are exposed to ultra-violet lamp.

vii. Latent Image: In the banknotes of ₹20 and above in the MG-2005 Series, the vertical band next to the (right side) Mahatma Gandhi’s portrait contains a latent image, showing the denominational value. The value can be seen only when the banknote is held horizontally, and light allowed to fall on it; otherwise, this feature appears only as a vertical band. In the MG (New) Series banknotes, the latent image exists in denominations ₹100 and above.

viii. Micro letterings: This feature appears at different places on the banknotes and can be seen better under a magnifying glass.

ix. Additional Features introduced since 2015:

• New Numbering Pattern

The numerals in both the number panels of the banknotes are in ascending size from left to right while the first three alpha-numeric characters (prefix) will remain constant in size.

• Angular Bleed Lines and Increase in the size of Identification Marks

Angular Bleed Lines have been introduced in banknotes - 4 lines in 2 blocks in ₹100, 4 angular bleed lines with two circles in between in ₹200, 5 lines in 3 blocks in ₹500, 7 in ₹2000*. In addition, the size of the identification marks in denominations ₹100 and above have been increased by 50 percent.

Information about the above security features present in the Indian banknotes denomination-wise is also available on the website www.rbi.org.in>>press releases. Alternately, information can also be accessed from https://website.rbi.org.in/web/rbi/-/notifications/master-circular-detection-and-impounding-of-counterfeit-notes-11610.

*₹2000 denomination notes continue to be legal tender. For more details, please refer to our press release 2023-2024/851 dated September 01, 2023 (https://rbi.org.in/web/rbi/-/press-releases/withdrawal-of-%E2%82%B92000-denomination-banknotes-status-56301).

Core Investment Companies

D. Miscellaneous:

26. If a company is unlisted, would the terms of block deals apply? What is the minimum number/value of shares transferred for it to be defined as a block deal/block sale?

Ans: The term used in the CIC Master Direction is block sale and not block deal which has been defined by SEBI. In the context of the Master Direction, a block sale would be a long term or strategic sale made for purposes of disinvestment or investment and not for short term trading. Unlike a block deal, there is no minimum number/value defined for the purpose.

Portfolio Investment Positions (PIP) by Counterpart Economy (formerly CPIS) – India

UPDATED: Dec 01, 2023

Special instructions for banks

Q26. Should portfolio investment assets made by branches of your bank located in IFSC zone of India to the rest of the world (i.e., excluding India) be included in PIP?

Ans: Yes, it should be included.

All you wanted to know about NBFCs

D. Depositor Protection Issues

26. Is there an Ombudsman for hearing complaints against NBFCs or does the Reserve Bank have any grievance redressal mechanism in place for NBFCs?

It is prescribed that the Board of Directors of NBFCs shall lay down the appropriate grievance redressal mechanism within the organisation and such mechanism shall ensure that all disputes arising out of the decisions of the lending institution’s functionaries are heard and disposed of at least at the next higher level.

Further, NBFCs (excluding Housing Finance Companies) which are authorised to accept deposits; or have customer interface and an asset size of ₹100 crore & above as on the date of the last audited balance sheet, are covered under Reserve Bank - Integrated Ombudsman Scheme, 2021 (as amended from time to time). In case of grievances against NBFCs, which are covered under RBI Ombudsman Scheme, are not redressed within a period of one month, the customer may approach the Ombudsman through its CMS portal accessible on the link https://cms.rbi.org.in/cms/indexpage.html#eng.

Domestic Deposits

III. Advances

27. (i) What are the ‘intermediary agencies’? (ii) What are ‘housing finance intermediary agencies’? +

An illustrative list of Intermediary Agencies is as under;

State Sponsored organizations for on-lending to Weaker Sections@
Distributors of agricultural inputs/ implements.
State Financial Corporations (SFCs)/ State Industrial Development Corporations (SIDCs) to the extent they provide credit to weaker sections.
National Small Industries Corporation (NSIC).
Khadi and Village Industries Commission (KVIC)
Agencies involved in assisting the decentralized sector.
Housing and Urban Development Corporation Ltd. (HUDCO)
Housing Finance Companies approved by National Housing Bank (NHB) for refinance.
State sponsored organization for SCs/STs (for purchase and supply of inputs to and/or marketing of output of the beneficiaries of these organizations).
Micro Finance Institutions/ Non-Government Organizations (NGOs) on lending to SHGs.

@ ‘Weaker Sections’ in Priority Sector includes following:

Small and marginal farmers with land holdings of 5 acres and less, landless labourers, tenant farmers and share-croppers;
Artisans, village and cottage industries where individual credit requirements do not exceed Rs.25,000/-.
Small and marginal farmers, sharecroppers, agricultural and non-agricultural labourers, rural artisans and families living below the poverty lines are the beneficiaries. The family income should not exceed Rs.11,000/- per annum.
Scheduled Castes and Scheduled Tribes.
Beneficiaries are persons whose family income from all sources does not exceed Rs.7200/- per annum in urban or semi urban areas or Rs.6400/- per annum in rural areas. They should not own any land or the size of their holding does not exceed one acre in the case of irrigated land and 2.5 acres in the case of unirrigated land (land holding criteria do not apply to SC/ST).
Beneficiaries under Scheme of Liberation and Rehabilitation of Scavengers (SLRs).
Advances granted to Self-Help Groups (SHGs) for reaching the rural poor.

FAQs on Non-Banking Financial Companies

Time frame for compliance of regulations

27. How will the NBFCs meet the stipulation of bringing down their deposit portfolio in alignment with the new regulations? +

The NBFCs have been permitted to regularise their excess public deposits by 1/3rd every year so as to pay off/regularise by obtaining/improving their Credit Rating or by augmenting NOF or by substituting public deposits by other form of debt the entire excess by 31st December, 2000. While the companies having the prescribed minimum level of Rating can accept fresh public deposit and renew such maturing deposit, the NBFCs which are unrated or rated below the minimum grade can only renew the maturing deposits. Within this period, the NBFCs are expected to augment their NOF, obtain or improve their Credit Rating, substitute public deposits by borrowings from other avenues. RBI does not intend to order the NBFCs to prematurely repay their deposits. The NBFCs may repay their deposits only on maturity. If the deposits accepted before January 2, 1998 are maturing after December 31, 2000 and the concerned NBFC holds these deposits in excess of its entitlements, this would not tantamount to violation of the RBI directions. It should, however, report the matter to the concerned Regional Office of Reserve Bank of India.

Retail Direct Scheme

Investment and Account holdings related queries

27. What are the risks of investing in Government Securities? +

G-Secs are credit risk free instruments in domestic currency. However, there are market risks if you sell before maturity. You may refer to ‘Government Securities Market- A primer’, published on RBI website, to understand various risks associated with government securities.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q27. What are participating and non-participating preference shares? +

Ans: Participating preference shares are those shares which have one or more of the following rights:

(a) To receive dividend, out of surplus profit after paying the dividend to equity shareholders.

(b) To have share in surplus assets remaining after the entire capital is paid in case of winding up of the company.

On the other hand, non-participating preference shares are those shares which do not have any of the above said rights.

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

Paytm Payments Bank Business Correspondent

27. I have an account with Paytm Payments Bank. Can the Paytm Payments Bank Business Correspondent (also referred to as Paytm Payments Bank Agent) help me in withdrawing funds from my account after March 15, 2024. +

Yes. The Paytm Payments Bank Business Correspondent (Bank Agent) can help you to withdraw money from your bank account upto the balance available in your account.

Government Securities Market in India – A Primer

27. What is Duration? +

27.1 Duration (also known as Macaulay Duration) of a bond is a measure of the time taken to recover the initial investment in present value terms. In simplest form, duration refers to the payback period of a bond to break even, i.e., the time taken for a bond to repay its own purchase price. Duration is expressed in number of years. A step by step approach for working out duration is given in the Box IV below.

Box: IV

Calculation for Duration

First, each of the future cash flows is discounted to its respective present value for each period. Since the coupons are paid out every six months, a single period is equal to six months and a bond with two years maturity will have four time periods.

Second, the present values of future cash flows are multiplied with their respective time periods (these are the weights). That is the PV of the first coupon is multiplied by 1, PV of second coupon by 2 and so on.

Third, the above weighted PVs of all cash flows is added and the sum is divided by the current price (total of the PVs in step 1) of the bond. The resultant value is the duration in no. of periods. Since one period equals to six months, to get the duration in no. of year, divide it by two. This is the time period within which the bond is expected to pay back its own value if held till maturity.

Illustration:

Taking a bond having 2 years maturity, and 10% coupon, and current price of ₹101.79, the cash flows will be (prevailing 2 year yield being 9%):

Time period (half year)	1	2	3	4	Total
Inflows (₹)	5	5	5	105	Total
PV at a yield of 9%	4.78	4.58	4.38	88.05	101.79
PV*time	4.78	9.16	13.14	352.20	379.28

Duration in number of periods = 379.28/101.79 = 3.73

Duration in years = 3.73/2 = 1.86 years

More formally, duration refers to:

The weighted average term (time from now to payment) of a bond's cash flows or of any series of linked cash flows.
The higher the coupon rate of a bond, the shorter the duration (if the term of the bond is kept constant).
Duration is always less than or equal to the overall life (to maturity) of the bond.
Only a zero coupon bond (a bond with no coupons) will have duration equal to its maturity.

What is Modified Duration?

27.2 Modified duration (MD) is a modified version of Macaulay Duration. It refers to the change in value of the security to one per cent change in interest rates (Yield). The formula is

Illustration

In the above example given in Box IV, MD = 1.86/(1+0.09/2) = 1.78

Duration is useful primarily as a measure of the sensitivity of a bond's market price to interest rate (i.e., yield) movements. It is approximately equal to the percentage change in price for one percent change in yield. For example the duration is the approximate percentage by which the value of the bond will fall for a 1% per annum increase in market interest rate. So, a 15-year bond with a duration of 7 years would fall approximately 7% in value if the interest rate increased by 1% per annum. In other words, duration is the elasticity of the bond's price with respect to interest rates. This ignores convexity explained in para 24.7

What is PV 01?

27.3 PV01 describes the actual change in price of a bond if the yield changes by one basis point (equal to one hundredth of a percentage point). It is the present value impact of 1 basis point (0.01%) (1%=100 bps) movement in interest rate. It is often used as a price alternative to duration (a time measure). Higher the PV01, the higher would be the volatility (sensitivity of price to change in yield).

Illustration

From the modified duration (given in the illustration under 27.2), we know that the security value will change by 1.78% for a change of 100 basis point (1%) change in the yield. In value terms that is equal to 1.78*(101.79/100) = ₹ 1.81.

Hence the PV01 = 1.81/100 = ₹0.018, which is 1.8 paise. Thus, if the yield of a bond with a Modified Duration of 1.78 years moves from say 9% to 9.05% (5 basis points), the price of the bond moves from ₹101.79 to ₹101.70 (reduction of 9 paise, i.e., 5x1.8 paise).

What is Convexity?

27.4 Calculation of change in price for change in yields based on duration works only for small changes in yields. This is because the relationship between bond price and yield is not strictly linear. Over large variations in yields, the relationship is curvilinear i.e., the reduction in option free bond price is less than the change calculated based only on duration for yield increase, and increase in option free bond price will be more than the change calculated based only on duration for yield decrease. This is measured by a concept called convexity, which is the change in duration of a bond due to change in the yield of the bond.

Foreign Investment in India

Q.27: What are the instructions for transfer of shares against deferred payment ? +

Answer: In case of transfer of shares between a resident buyer and a non-resident seller or vice-versa, not more than twenty five per cent of the total consideration can be paid by the buyer on a deferred basis, within a period not exceeding eighteen months from the date of the transfer agreement. The amount deferred can also be either in the form of an indemnity or an Escrow. In all cases, the pricing guidelines should be complied with.

Indian Currency

C) Different Types of Bank Notes and Security Features of banknotes

7. How can one distinguish the MG series-2005 banknotes? +

In addition to the security features listed above, banknotes issued after introduction of MG series-2005 have the year of printing on the reverse of the banknotes which is not present in the pre-2005 series.

Core Investment Companies

D. Miscellaneous:

27. Will adjusted net worth of all the CICs in the Group also be aggregated for compliance purposes ?

Ans: Adjusted net worth (ANW) is a concept akin to capital requirement wherein the ANW should not be less than 30% of the risk weighted assets (RWA). In cases where asset size is aggregated, all the CICs within the group will be registered as CIC and ANW will be applicable individually.

Portfolio Investment Positions (PIP) by Counterpart Economy (formerly CPIS) – India

UPDATED: Dec 01, 2023

Special instructions for banks

Q27. Should portfolio investment assets made by branches of your bank located in non IFSC zone of India to other branches located in IFSC zone be included in PIP? +

Ans: No, it should not be included, as it will be considered as resident-to-resident transaction.

All you wanted to know about NBFCs

D. Depositor Protection Issues

27. What does the Reserve Bank do to protect the interests of NBFC depositors? +

The Reserve Bank has issued detailed regulations on deposit acceptance, including the quantum of deposits that can be collected, mandatory credit rating, mandatory maintenance of liquid assets for repayment to depositors, manner of maintenance of its deposit books, prudential regulations including maintenance of adequate capital, limitations on exposures, and inspection of the NBFCs, besides others, to ensure that the NBFCs function on sound lines. If the Reserve Bank observes through its inspection or audit of any NBFC or through complaints or through market intelligence, that a certain NBFC is not complying with the Reserve Bank’s directions, it may prohibit the NBFC from accepting further deposits and prohibit it from selling its assets. In addition, if the depositor has complained to the Company Law Board (CLB) [now National Company Law Tribunal (NCLT)] which has ordered repayment and the NBFC has not complied with the CLB/NCLT order, the Reserve Bank can initiate prosecution of the NBFC, including criminal action and winding up of the NBFC.

More importantly, the Reserve Bank initiates prompt action, including imposing penalties and taking legal action against companies which are found to be violating its instructions/norms on the basis of Market Intelligence reports, complaints, exception reports from statutory auditors of the companies, information received through SLCC meetings, etc. The Reserve Bank immediately shares such information with all the financial sector regulators and enforcement agencies in the State Level Coordination Committee Meetings.

As part of its public policy measure, the Reserve Bank has been in the forefront in taking several initiatives to create awareness among the general public on the need to be careful while investing their hard earned money. The initiatives include issue of cautionary notices in print media and distribution of informative and educative brochures/pamphlets and close interaction with the public during awareness/outreach programs, Townhall events, participation in State Government sponsored trade fairs and exhibitions. At times, it even requests newspapers with large circulation (English and vernacular) to desist from accepting advertisements from unincorporated entities seeking deposits. The Reserve Bank has also launched its public awareness initiative with the tag line ‘RBI Kehta Hai’ which may be accessed at https://rbi.org.in/web/rbi/rbi-kehta-hai.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q28. What is Foreign Direct Investment (FDI) in India? +

Ans: If the Indian entity has issued the shares to non-resident entities under the FDI scheme in India, then it is a FDI and should be reported under the Foreign Direct Investment in India (Liabilities) of the return.

FAQs on Non-Banking Financial Companies

Credit Rating

28. Are companies having Ratings less than the minimum Investment Grade, eligible to accept public deposits? +

The NBFCs in the category of equipment leasing and hire purchase finance companies having Rating of less than the Investment Grade as mentioned below are no longer entitled to accept fresh public deposits :

Name of rating agencies	Level of minimum investment grade credit rating
EL/HP Cos.	LC/ICs
CRISIL	A- (A MINUS)
ICRA	A- (A MINUS)
CARE	BBB (FD)
DCR India	BBB- (BBB minus)

The Loan and Investment Companies having Rating of less than `A are no longer entitled to accept fresh deposits.

It may be added that A- is not equivalent to A; AA- is not equivalent to AA and AAA- is not equivalent to AAA.

Retail Direct Scheme

Investment and Account holdings related queries

28. What are the returns on investments in Government securities? +

The returns on Government securities are dependent on various features of the securities. You may refer to ‘Government Securities Market- A primer’, published on RBI website, to understand the factors affecting the returns on government securities.

Domestic Deposits

III. Advances

28. Whether banks can charge interest rate without reference to their own BPLR? +

Yes. The banks are free to determine the rates of interest without reference to BPLR and regardless of the size, in respect of following loans:

(i) a. Loans for purchase of consumer durables.

b. Loans to individuals against shares and debentures/ bonds

c. Other non-priority sector personal loans.

d. Advances/ overdrafts against domestic/ NRE/ FCNR(B) deposits with the bank, provided that the deposit/s stands/ stand either in the name(s) of the borrower himself/ borrowers themselves, or in the names of the borrower jointly with another person.

e. Finance granted to intermediary agencies (excluding those of housing) for on lending to ultimate beneficiaries and agencies providing input support.

f. Finance granted to housing finance intermediary agencies for on lending to ultimate beneficiaries

g. Discounting of Bills

h. Loans/Advances/Cash Credit/Overdrafts against commodities subject to Selective Credit Control

ii. Loans covered by participation in interest refinancing schemes of term lending institutions.

Banks are free to charge rates as per stipulations of the refinancing agencies without reference to BPLR

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

Accounts frozen, lien marked etc.

28. What will happen to my Paytm Payments Bank account/wallet if there is a lien or freeze marked on the directions of Law Enforcement or judicial authorities?

Any lien or freeze (full or partial) marked as per the instructions of any law enforcement or judicial authorities on the account/wallet of a customer with Paytm Payments Bank will continue to be governed by the orders passed by such authorities

Government Securities Market in India – A Primer

28. What are the important guidelines for valuation of securities? +

28.1 For Cooperative banks, investments classified under 'Held to Maturity' (HTM) category need not be marked to market and will be carried at acquisition cost unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity. The individual scrip in the ‘Available for Sale’ (AFS) category in the books of the cooperative banks will be marked to market at the year-end or at more frequent intervals. The individual scrip in the ‘Held for Trading’ (HFT) category will be marked to market at monthly or at more frequent intervals. The book value of individual securities in AFS and HFT categories would not undergo any change after marking to market.

28.2 RBI vide FMRD.DIRD.7/14.03.025/2017-18 dated March 31, 2018 has notified that Financial Benchmark India Pvt. Ltd (FBIL) has been advised to assume the responsibility for administering valuation of Government securities with effect from March 31, 2018. From this date, FIMMDA has ceased to publish prices/yield of Government securities and this role has been taken over by FBIL. FBIL had commenced publication of the G-Sec and SDL valuation benchmarks based on the extant methodology. Going forward, FBIL will undertake a comprehensive review of the valuation methodology. RBI regulated entities, including banks, non-bank financial companies, Primary Dealers, Co-Operative banks and All India Financial Institutions who are required to value Government securities using prices published by FIMMDA as per previous directions may use FBIL prices with effect from March 31, 2018. Other market participants who have been using Govt. securities prices/yields published by FIMMDA may use the prices/yields published by FBIL for valuation of their investment portfolio.

28.3 State Development Loans were previously valued by applying YTM method by marking it up by a spread of 25 basis points on the Central G-Sec yield of the corresponding residual maturity, whereas for corporate bonds the spreads given by the FIMMDA need to be added. RBI vide its notification DBR.BP.BC.No.002 /21.04.141/2018-19 dated July 27, 2018 decided that securities issued by each state government, i.e., State Development Loans (SDLs), shall be valued in a manner which would objectively reflect their fair value based on observed prices/yields and Financial Benchmarks India Pvt. Ltd. (FBIL) shall make available prices for valuation of SDLs based on the above principles. Brief details of valuation methodology is provided in Box V.

Box: V

A framework in this regard has been formulated by FBIL having the following elements: (a) On any business day, the secondary market prices/YTM of SDLs and the auction prices/YTM of SDLs, as available, will be used for their valuation. However, the secondary market trades that are referred to the Dispute Resolution Committee (DRC) of the Fixed Income Money Market and Derivatives Association of India (FIMMDA) and the reversed trades when they occur, will be excluded, (b) Interpolation/ extrapolation technique will be used in respect of the remaining SDLs which do not trade on that day, and (c) Consistency/market alignment check, as applicable, will be applied in respect of all traded prices/YTM.

The methodology seeks to strike a judicious and prudent balance between two opposing considerations: Since the number of actual/observed prices in respect of SDLs are very small, the opportunity cost of not including any actual/observed price is high (consequence of the so-called Type 1 error). However, sufficient care has been exercised, by way of the imposition of a set of objective criteria, to make sure that (i) off-market data are excluded, and (ii) no incentive for market manipulation is provided (reducing the possibility of the so called Type 2 error).

The detailed valuation methodology along with illustrations is provided on FBIL website at link https://www.fbil.org.in/uploads/general/FBIL-SDL_Valuation_Methodology.pdf

28.4 In the case of corporate bonds, the spread that need to be added to the corresponding yield on central G-Sec will be published by the FIMMDA from time to time. FIMMDA gives out the information on corporate bond spreads for various ratings of bonds. While valuing a bond, the appropriate spread has to be added to the corresponding CG yield and the bond has to be valued using the standard ‘Price’ formula.

Foreign Investment in India

Q.28. In case of transfer of capital instruments between a person resident in India and a person resident outside India on deferred payment basis, at which stage the form FC-TRS is required to be filed ? +

Answer: Form FC-TRS has to be filed with the AD bank on receipt of every tranche of payment. The onus of reporting shall be on the resident transferor/ transferee.

Indian Currency

C) Different Types of Bank Notes and Security Features of banknotes

8. What features on the banknote Mahatma Gandhi (New) Series (MGNS) can help visually challenged people identify the different denominations? +

The Mahatma Gandhi (New) Series banknotes have a sharp colour contrast scheme to facilitate identification by the partially visually challenged. The banknotes from ₹100 denomination onwards, have angular bleed lines (4 lines in 2 blocks in ₹100, 4 angular bleed lines with two circles in between in ₹200, 5 lines in 3 blocks in ₹500, 7 in ₹2000*) and identification mark for the benefit of the visually challenged. There is an identification mark on the front side of each note which is in raised print (intaglio) and has different shapes for different denominations for e.g. Horizontal rectangle for ₹2000, circle for ₹500, raised Identification mark H for ₹200, triangle for ₹100. Further, in these denominations, numerals are prominently displayed in the central area of the notes in raised print.

Core Investment Companies

D. Miscellaneous:

28. Whether para 2.8.1 of Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 on consolidation of assets of all NBFCs in the group to determine the threshold for the classification of NBFCs in the Middle layer is applicable for CICs? Whether the assets of CICs should be aggregated for classification of NBFCs in the group into middle layer?

Ans: The total assets of all NBFCs (Including Standalone Primary Dealer (SPD), Infrastructure Debt Fund-Non-Banking Financial Company (IDF-NBFC) and NBFCs which will always remain in Base Layer, viz., NBFC-Peer to Peer Lending Platform (NBFC-P2P), NBFC-Account Aggregator (NBFC-AA), Non-Operative Financial Holding Company (NOFHC) and NBFC without public funds and customer interface) in a Group, including all the registered Core Investment Companies (CICs) and unregistered CICs with asset size less than ₹100 crore which have raised public funds, shall be consolidated to determine the threshold for classification of other group NBFCs (NBFC- Investment and Credit Company (NBFC-ICC), NBFC- Micro Finance Institution (NBFC-MFI), NBFC- Factor and NBFC- Mortgage Guarantee Company (NBFC-MGC)) into middle layer. However, the consolidation of asset of unregistered CICs for the above purpose would not change the status of unregistered CICs.

All you wanted to know about NBFCs

D. Depositor Protection Issues

28. What is the purpose of enacting Protection of Interest of Depositors in Financial Establishments Act by the State Governments? +

The purpose of enacting this law is to protect the interests of the depositors. The provisions of RBI Act are directed towards enabling RBI to issue prudential regulations that make the financial entities function on sound lines. RBI is a civil body and the RBI Act is a civil Act. Both do not have specific provisions to effect recovery by attachment and sale of assets of the defaulting companies, entities or their officials. It is the State government machinery which can effectively do this. The Protection of Interest of Depositors in Financial Establishments Acts, confers adequate powers on the State Governments to attach and sell assets of the defaulting companies, entities and their officials.

FAQs on Non-Banking Financial Companies

Credit Rating

29. Can an NBFC which is yet to be Rated accept public deposit ? +

No. If any NBFC has not obtained the minimum prescribed Credit Rating, it is not entitled to raise public deposits

Domestic Deposits

III. Advances

29. Whether it is in order for banks to have multiple BPLRs? +

No. Since all lending rates can be determined with reference to the Benchmark PLR by taking into account term premia and/or risk premia, there is no need for multiple BPLRs. These premia can be factored in to the spread over or below the BPLR.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q29. What valuation guidelines are used while reporting foreign equity investment for unlisted companies? +

Ans: Under FLA return, calculation of market value of equity capital for unlisted companies is done using the Own Funds at Book Value (OFVB) method, in accordance with IMF’s guidelines under the compilation of CDIS data for a country. It is calculated as follows:

Market value of equity capital held by Non- resident at OFBV for current year/previous year

= (Net worth of the company for current year/previous year) * (% non-resident equity holding for current year/previous year)

where, Net worth of the company

= (Paid up Equity & Participating Preference share capital of company + Reserves & Surplus - Accumulated losses)

Retail Direct Scheme

Investment and Account holdings related queries

29. What is the minimum amount for investment through Retail Direct platform? +

S. No.	Government security	Minimum investment amount/quantity (as on Nov 12, 2021)
1	Government of India Treasury Bills (T-Bills)	₹10,000
2	Government of India dated securities (dated G-Sec)	₹10,000
3	State Development Loans (SDLs)	₹10,000
4	Sovereign Gold Bonds (SGB)	One gram of gold

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

Accounts frozen, lien marked etc.

29. What will happen to my Paytm Payments Bank account/ wallet if there is a lien or freeze marked on account of internal policies of Paytm Payments Bank?

The bank has been directed to allow withdrawal or transfer to another bank account of the customer, upto the available balance in the account / wallets.

Government Securities Market in India – A Primer

29. What are the risks involved in holding G-Secs? What are the techniques for mitigating such risks? +

G-Secs are generally referred to as risk free instruments as sovereigns rarely default on their payments. However, as is the case with any financial instrument, there are risks associated with holding the G-Secs. Hence, it is important to identify and understand such risks and take appropriate measures for mitigation of the same. The following are the major risks associated with holding G-Secs:

29.1 Market risk – Market risk arises out of adverse movement of prices of the securities due to changes in interest rates. This will result in valuation losses on marking to market or realizing a loss if the securities are sold at adverse prices. Small investors, to some extent, can mitigate market risk by holding the bonds till maturity so that they can realize the yield at which the securities were actually bought.

29.2 Reinvestment risk – Cash flows on a G-Sec includes a coupon every half year and repayment of principal at maturity. These cash flows need to be reinvested whenever they are paid. Hence there is a risk that the investor may not be able to reinvest these proceeds at yield prevalent at the time of making investment due to decrease in interest rates prevailing at the time of receipt of cash flows by investors.

29.3 Liquidity risk – Liquidity in G-Secs is referred to as the ease with which security can be bought and sold i.e. availability of buy-sell quotes with narrow spreads. Liquidity risk refers to the inability of an investor to liquidate (sell) his holdings due to non-availability of buyers for the security, i.e., no trading activity in that particular security or circumstances resulting in distressed sale (selling at a much lower price than its holding cost) causing loss to the seller. Usually, when a liquid bond of fixed maturity is bought, its tenor gets reduced due to time decay. For example, a 10-year security will become 8 year security after 2 years due to which it may become illiquid. The bonds also become illiquid when there are no frequent reissuances by the issuer (RBI) in those bonds. Bonds are generally reissued till a sizeable amount becomes outstanding under that bond. However, issuer and sovereign have to ensure that there is no excess burden on Government at the time of maturity of the bond as very large amount maturing on a single day may affect the fiscal position of Government. Hence, reissuances for securities are generally stopped after outstanding under that bond touches a particular limit. Due to illiquidity, the investor may need to sell at adverse prices in case of urgent funds requirement. However, in such cases, eligible investors can participate in market repo and borrow the money against the collateral of such securities.

Risk Mitigation

29.4 Holding securities till maturity could be a strategy through which one could avoid market risk. Rebalancing the portfolio wherein the securities are sold once they become short term and new securities of longer tenor are bought could be followed to manage the portfolio risk. However, rebalancing involves transaction and other costs and hence needs to be used judiciously. Market risk and reinvestment risk could also be managed through Asset Liability Management (ALM) by matching the cash flows with liabilities. ALM could also be undertaken by matching the duration of the assets and liabilities.

Advanced risk management techniques involve use of derivatives like Interest Rate Swaps (IRS) through which the nature of cash flows could be altered. However, these are complex instruments requiring advanced level of expertise for proper understanding. Adequate caution, therefore, need to be observed for undertaking the derivatives transactions and such transactions should be undertaken only after having complete understanding of the associated risks and complexities.

Foreign Investment in India

Q.29: What is the concept of downstream investment and Indirect Foreign Investment ? +

Answer: Downstream investment is investment made by an Indian entity which has total foreign investment in it or an Investment Vehicle in the capital instruments or the capital, as the case may be, of another Indian entity.If the investor company has total foreign investment in it and is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India then such investment shall be “Indirect Foreign Investment” for the investee company.

Indian Currency

C) Different Types of Bank Notes and Security Features of banknotes

9. What is Mobile Aided Note Identifier (MANI)? +

Mobile Aided Note Identifier (MANI) is a mobile application launched by the Reserve Bank for aiding visually impaired persons to identify the denomination of Indian Banknotes. The free of cost application, once installed, does not require internet and is capable of identifying the denominations of Mahatma Gandhi Series and Mahatma Gandhi (New) series banknote by checking front or reverse side/part of the note including half folded notes at various holding angles and in a broad range of light conditions (normal light/day light/low light etc).

Note: This mobile application does not authenticate a note as being either genuine or counterfeit.

Core Investment Companies

D. Miscellaneous:

29. Are Core Investment Companies (CICs) permitted to invest in Liquid Fund Schemes (Mutual Funds) with maturity of less than 91 days?

Ans: Yes. As per the present directions for CICs, they are permitted to make investments in money market instruments, including money market mutual funds. Since Liquid Funds are also mutual funds with the underlying being money market instruments; CICs are permitted to invest their surplus funds in Liquid Fund Schemes also.

All you wanted to know about NBFCs

D. Depositor Protection Issues

29. Will the passage of the Protection of Interest of Depositors in Financial Establishments by the State Governments help in nailing unincorporated entities and companies from unauthorisedly accepting deposits? +

Yes, to a large extent. The Act makes offences, such as, unauthorized acceptance of deposits by any entity, firm or company a cognizable offence, that is entities that are indulging in unauthorized deposit acceptance or unlawful financial activities can be immediately imprisoned and prosecuted. Under the Act, the State Governments have been given vast powers to attach the property of such entities, dispose them off under the orders of special courts and distribute the proceeds to the depositors. The widespread State Government / State Police machinery is best positioned to take quick action against the culprits.

Further, Government of India has recently enacted the Banning of Unregulated Deposit Schemes Act, 2019, a Central Legislation, which provides a comprehensive mechanism to ban the unregulated deposit schemes, other than deposits taken in ordinary course of business, and to protect the interest of depositors. This Act has specific provisions for restitution of depositors through various means viz., attachment and sale of property, etc. This Act also provides for enhanced legislative mechanism for handling unregulated deposit schemes viz., constitution of Designated Courts to deal with matters under the Act, powers for investigation (including by Central Bureau of Investigation in case deposits, deposit-takers and properties are located in more than one State or Union Territory, or outside India), search & seizure, penal provisions, etc.

FAQs on Non-Banking Financial Companies

Credit Rating

30. If an NBFC obtains Ratings from two Rating Agencies and these Ratings are different, which Rating would be considered valid for determining the level of deposits it can solicit? +

An NBFC that has been rated by two agencies, is free to use the rating beneficial to it. In case of wide variation between the two Ratings, RBI can take up the matter with both the Credit Rating Agencies to review and rationalise their opinion about the companys Rating.

Domestic Deposits

III. Advances

30. Whether banks can grant fixed rate loans for the purposes other than project finance? +

The banks have freedom to offer all loans to fixed or floating rates subject to conformity to Asset Liability Management (ALM) Guidelines.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q30. What valuation guidelines are used while reporting foreign equity investment for listed companies? +

Ans: If the Indian reporting entity is listed, then their closing share price as on reference period, i.e., end-March of previous and current year is used for valuation of non-resident equity investment.

Retail Direct Scheme

Investment and Account holdings related queries

30. What is the maximum amount that I can invest in Government securities? +

For dated G-Sec, T-Bills and SDLs – The following limits apply if you purchase these securities through the non-competitive segment of primary auctions:

S. No.	Government security	Maximum investment amount/quantity (as on Nov 12, 2021)
1	Government of India Treasury Bills (T-Bills)	The aggregate allocation of all non-competitive bids will be restricted to a maximum of 5% of the aggregate nominal amount of the issue within the notified amount as specified by the Government of India, or any other percentage determined by RBI.
2	Government of India dated securities (dated G-Sec)	₹2 crore (face value) per security per auction.
3	State Development Loans (SDLs)	1% of notified amount (face value) per auction

For Sovereign Gold Bonds (SGBs) – An individual may not subscribe to more than 4 kg of SGBs per fiscal year. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the Secondary Market.

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

Onboarding of new customers

30. What is the status of the Business restriction placed on Paytm Payments Bank vide RBI Press Release dated March 11, 2022?

The business restriction dated March 11, 2022, prohibiting Paytm Payments Bank from onboarding any new customers for any of its services continues to be in force. Hence, Paytm Payments Bank cannot onboard any new customers after March 11, 2022.

Government Securities Market in India – A Primer

30. What is Money Market? +

30.1 While the G-Secs market generally caters to the investors with a long-term investment horizon, the money market provides investment avenues of short term tenor. Money market transactions are generally used for funding the transactions in other markets including G-Secs market and meeting short term liquidity mismatches. By definition, money market is for a maximum tenor of one year. Within the one year, depending upon the tenors, money market is classified into:

i. Overnight market - The tenor of transactions is one working day.

ii. Notice money market – The tenor of the transactions is from 2 days to 14 days.

iii. Term money market – The tenor of the transactions is from 15 days to one year.

What are the different money market instruments?

30.2 Money market instruments include call money, repos, T- Bills (for details refer para 1.3), Cash Management Bills (for details refer para 1.4), Commercial Paper, Certificate of Deposit and Collateralized Borrowing and Lending Obligations (CBLO).

Call money market

30.3 Call money market is a market for uncollateralized lending and borrowing of funds. This market is predominantly overnight and is open for participation only to scheduled commercial banks and the primary dealers.

Repo market

30.4 Repo or ready forward contact is an instrument for borrowing funds by selling securities with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.

30.5 The reverse of the repo transaction is called ‘reverse repo’ which is lending of funds against buying of securities with an agreement to resell the said securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.

30.6 It can be seen from the definition above that there are two legs to the same transaction in a repo/ reverse repo. The duration between the two legs is called the ‘repo period’. Predominantly, repos are undertaken on overnight basis, i.e., for one day period. Settlement of repo transactions happens along with the outright trades in G-Secs.

30.7 The consideration amount in the first leg of the repo transactions is the amount borrowed by the seller of the security. On this, interest at the agreed ‘repo rate’ is calculated and paid along with the consideration amount of the second leg of the transaction when the borrower buys back the security. The overall effect of the repo transaction would be borrowing of funds backed by the collateral of G-Secs.

30.8 The repo market is regulated by the Reserve Bank of India. All the above mentioned repo market transactions should be traded/reported on the electronic platform called the Clearcorp Repo Order Matching System (CROMS).

30.9 As part of the measures to develop the corporate debt market, RBI has permitted select entities (scheduled commercial banks excluding RRBs and LABs, PDs, all-India FIs, NBFCs, mutual funds, housing finance companies, insurance companies) to undertake repo in corporate debt securities. This is similar to repo in G-Secs except that corporate debt securities are used as collateral for borrowing funds. Only listed corporate debt securities that are rated ‘AA’ or above by the rating agencies are eligible to be used for repo. Commercial paper, certificate of deposit, non-convertible debentures of original maturity less than one year are not eligible for this purpose. These transactions take place in the OTC market and are required to be reported on FIMMDA platform within 15 minutes of the trade for dissemination of trade information. They are also to be reported on the clearing house of any of the exchanges for the purpose of clearing and settlement.

Triparty Repo

"Tri-party repo" means a repo contract where a third entity (apart from the borrower and lender), called a Tri-Party Agent, acts as an intermediary between the two parties to the repo to facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction. Funds borrowed under repo including tri-party repo in government securities shall be exempted from CRR/SLR computation and the security acquired under repo shall be eligible for SLR provided the security is primarily eligible for SLR as per the provisions of the Act under which it is required to be maintained.

Tri Party Repo Dealing System (TREPS) facilitates, borrowing and lending of funds, in Triparty Repo arrangement. CCIL is the Central Counterparty to all trades from TREPS and also perform the role and responsibilities of Triparty Repo Agent. All the repo eligible entities are entitled to participate in Triparty Repo. The entity type admitted include, Public Sector Banks, Private Banks, Foreign Banks, Co-operative Banks, Financial Institutions, Insurance Companies, Mutual Funds, Primary Dealers, Bank cum Primary Dealers, NBFCs, Corporates, Provident/ Pension Funds, Payment Banks, Small Finance Banks, etc.

TREPS Dealing System is an anonymous order matching System provided by CCDS (Clearcorp Dealing Systems (India) Ltd) to enable Members to borrow and lend funds. It also disseminates online information regarding deals concluded, volumes, rate etc., and such other notifications as relevant to borrowing and lending under Triparty Repo by the members. The borrowing and/ or lending can be done for settlement type T+0 and T+1.

Commercial Paper (CP)

30.13 Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note and held in a dematerialized form through any of the depositories approved by and registered with SEBI. A CP is issued in minimum denomination of ₹5 lakh and multiples thereof and shall be issued at a discount to face value No issuer shall have the issue of CP underwritten or co-accepted and options (call/put) are not permitted on a CP. Companies, including NBFCs and AIFIs, other entities like co-operative societies, government entities, trusts, limited liability partnerships and any other body corporate having presence in India with net worth of ₹100 cr or higher and any other entities specifically permitted by RBI are eligible to issue Commercial papers subject to conditions specified by RBI. All residents, and non-residents permitted to invest in CPs under Foreign Exchange Management Act (FEMA), 1999 are eligible to invest in CPs; however, no person can invest in CPs issued by related parties either in the primary or secondary market. Investment by regulated financial sector entities will be subject to such conditions as the concerned regulator may impose.

RBI has issued Reserve Bank Commercial Paper Directions 2017 - FMRD.DIRD.01/CGM (TRS) - 2017 dated August 10, 2017

Certificate of Deposit (CD)

30.14 Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Banks can issue CDs for maturities from 7 days to one year whereas eligible FIs can issue for maturities from 1 year to 3 years.

Foreign Investment in India

Q.30: Whether an Indian company (owned or controlled by persons resident outside India or not owned and not controlled by resident Indian citizens (FOCC)) investing in instruments other than capital instruments of another Indian company will be treated as downstream investment ? +

Answer: No

Indian Currency

C) Different Types of Bank Notes and Security Features of banknotes

10. What are the quality control measures adopted in currency note printing?

The processes and systems followed for production of Indian banknotes are at par with the best practices adopted globally. In line with the same, banknote quality is maintained well within the various tolerance parameters for dimension, placement of design, print features etc. A press release issued by RBI in this regard can be accessed at the following link: https://rbi.org.in/web/rbi/-/press-releases/rbi-clarifies-on-quality-control-measures-in-currency-note-printing-41364.

Core Investment Companies

D. Miscellaneous:

30. Can CICs undertake non-financial activities such as trading or rendering services to their group companies?

Yes, activities such as trading or rendering services to the group companies are not restricted for CICs, provided such activities are carried out purely in the nature of a non-financial activity, and they do not lead the CIC to carry on any other financial activity not permitted under the extant instructions within the group or on behalf of the group entities. Such activities should not ultimately render creation of any financial asset which the CICs are not permitted to hold within/outside the group. Further, CICs cannot enter into commodity derivative contracts or hold any non-financial assets other than real estate or other fixed assets which are required for effective functioning of the CIC outside the group within the limit of 10% of net assets.

All you wanted to know about NBFCs

D. Depositor Protection Issues

30. Still there are cases of unscrupulous financial entities cheating public time and again. How does the Reserve Bank plan to strengthen its surveillance on unauthorized acceptance of deposits/unauthorized conduct of NBFI business by companies? +

The Reserve Bank is strengthening its market intelligence function and is constantly examining the financials of companies, references for which are received through market intelligence or complaints to the Reserve Bank. As part of initiative of State Level Consultation Committee comprising of Regulators and Government, the Sachet portal (https://sachet.rbi.org.in/) has been launched and members of public are requested to share any relevant information pertaining to unauthorised collection of deposits. In this, context, members of public can contribute a great deal by being vigilant and lodging a complaint immediately if they come across any financial entity that contravenes the RBI Act. For example, if they are accepting deposits unauthorisedly and/conducting NBFC activities without obtaining due permission from the Reserve Bank. More importantly, these entities will not be able to function if members of public start investing wisely. Members of the public must know that high returns on investments will also have high risks. And there can be no assured return for speculative activities. Before investing, the public must ensure that the entity they are investing in is a regulated entity with one of the financial sector regulators.

FAQs on Non-Banking Financial Companies

Credit Rating

31. One common practice has been noticed among the NBFCs that if the Rating awarded by one Agency is not satisfactory to them, the company does not accept the Rating and approaches another agency for the purpose. It is also alleged that the NBFC arranges to get a higher Rating. Is there any method by which RBI can come to know of the names of the companies Rated and the level of Rating given to them by the Agencies irrespective of whether the Rating has been accepted or not ? +

The Rating Agencies have incorporated a clause in their agreements with the NBFCs that they can disclose the Rating to the regulatory authorities viz. RBI. The RBI has started getting the information from the Agencies.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q31. What is the definition of related party? +

Ans: A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to as the ‘reporting entity’).

A person or a close member of that person’s family is related to a reporting entity if that person:

(i) has control or joint control over the reporting entity.

(ii) has significant influence over the reporting entity; or

(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

In the definition of a related party, an associate includes subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture. Therefore, for example, an associate’s subsidiary and the investor that has significant influence over the associate are related to each other.

Retail Direct Scheme

Investment and Account holdings related queries

31. How can I buy securities through Retail Direct platform? +

There are two ways to buy Government securities through Retail Direct platform:

By placing a bid in the primary auctions of dated G-Sec, T-Bills and SDLs (Non-competitive segment only, i.e., by only entering the desired amount of securities, without entering a price). For Sovereign Gold Bonds (SGBs), you may place a bid during the subscription windows announced by RBI on its website. For step-by-step details on bidding in auctions, you may refer to the User Manual on the Retail Direct Portal.
By placing a buy quote in the secondary market portal.

Domestic Deposits

III. Advances

31. Whether the revised BPLRs will be applicable to the existing advances? +

Yes. The banks are required to invariably incorporate following proviso in the loan agreements in the case of all advances, including term loans, enabling banks to charge the applicable interest rate in conformity with the directive issued by RBI, except in case of Fixed Rate Loans. “Provided that the interest payable by the borrower shall be subject to the changes in interest rates made by the Reserve Bank from time to time”.

Government Securities Market in India – A Primer

31. What are the role and functions of FIMMDA & FBIL +

31.1 The Fixed Income Money Market and Derivatives Association of India (FIMMDA), an association of Scheduled Commercial Banks, Public Financial Institutions, Primary Dealers and Insurance Companies was incorporated as a Company under section 25 of the Companies Act,1956 on June 3, 1998. FIMMDA is a voluntary market body for the bond, money and derivatives markets. FIMMDA has members representing all major institutional segments of the market. The membership includes Nationalized Banks such as State Bank of India, its associate banks and other nationalized banks; Private sector banks such as ICICI Bank, HDFC Bank; Foreign Banks such as Bank of America, Citibank, Financial institutions such as IDFC, EXIM Bank, NABARD, Insurance Companies like Life Insurance Corporation of India (LIC), ICICI Prudential Life Insurance Company, Birla Sun Life Insurance Company and all Primary Dealers.

31.2 FIMMDA represents market participants and aids the development of the bond, money and derivatives markets. It acts as an interface with the regulators on various issues that impact the functioning of these markets. FIMMDA also plays a constructive role in the evolution of best market practices by its members so that the market as a whole operates transparently as well as efficiently.

31.3 Financial Benchmarks India Pvt. Ltd (FBIL) was incorporated in 2014 as per the recommendations of the Committee on Financial Benchmarks. FBIL has taken over existing benchmarks such as Mumbai Inter-Bank Outright Rate (MIBOR) and option volatility and introduced new benchmarks such as Market Repo Overnight Rate (MROR), Certificate of Deposits (CDs) and T-Bills yield curves. The development of FBIL as an independent organisation for administration of all financial market benchmarks including valuation benchmarks is important for the credibility of these benchmarks and integrity of financial markets. FBIL has assumed the responsibility for administering valuation of Government securities with effect from March 31, 2018.

FBIL has also assumed the responsibility for computation and dissemination of the daily “Reference Rate” for Spot USD/INR and other major currencies against the Rupee, which was previously being done by the Reserve Bank.

Foreign Investment in India

Q.31: Since the instructions on Downstream Investment were issued by the Reserve Bank in 2013, what is the status of investment made prior to the issue of the instructions ? +

Answer: Downstream investment made in accordance with the guidelines in existence prior to February 13, 2009 would not require any modification to conform to these regulations. All other investments, after the said date, would come under the ambit of FEMA 20(R). Downstream investments made between February 13, 2009 and June 21, 2013 which were not in conformity with these regulations should have been intimated to the Reserve Bank by October 3, 2013, for treating such cases as compliant with these regulations.

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

1. What are soiled, mutilated and imperfect banknotes? +

(i) A ‘soiled note’ means a note which has become dirty due to normal wear and tear and includes a two-piece note pasted together wherein both the pieces presented belong to the same note and form the entire note with no essential feature missing.

(ii) “Mutilated banknote” is a banknote, of which a portion is missing, or which is composed of more than two pieces.

(iii) “Imperfect banknote” means any banknote, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated banknote.

Core Investment Companies

D. Miscellaneous:

31. How many layers of CICs are permitted in a group? How to identify the number of layers in a group?

The number of layers of CICs within a Group (including the parent CIC) shall be restricted to two, irrespective of the extent of direct or indirect holding/ control exercised by a CIC in the other CIC. For instance, if a group consists of a parent CIC namely HCo which is holding 100 per cent equity capital in three other CICs namely A, B and C, the layers in the group shall be as follows.

HCo shall be considered as first layer of CIC
A,B and C shall be considered as second layer of CICs.
Any cross holdings, directly or indirectly through other entities in the group, by CICs in the second layer in any other CIC in the group shall be considered as creation of third layer of CIC/s in the group structure which is a violation of the extant instructions. However, investment by second layer CICs in non-CIC group companies is not a violation to the extant CIC regulations. Further, no restriction is placed on number of CICs in a horizontal layer.

All you wanted to know about NBFCs

E. Collective Investment Schemes (CIS) and Chit Funds

31. Are Collective Investment Schemes (CIS) regulated by the Reserve Bank? +

No. CIS are schemes where money is exchanged for units, be it profits, income, produce, property etc. Collective Investment Schemes (CIS) do not fall under the regulatory purview of the Reserve Bank and falls under the regulatory purview of SEBI. Information on such schemes and grievances against the promoters may be immediately forwarded to SEBI as well as to the EOW/Police Department of the State Government.

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

2. What is Clean Note Policy?

Reserve Bank of India has been continuously making efforts to make good quality banknotes available to the members of public. To help RBI and the banking system towards this objective, the members of public are requested to ensure the following:

Not to staple the banknotes;
Not to write/put rubber stamp or any other mark on the banknotes;
Not to use banknotes for making garlands/toys, decorating pandals and places of worship or for showering on personalities in social events, etc.

3. Are there any instructions for preventing the use of banknotes for making garlands?

The Reserve Bank of India has issued a press release on March 12, 2008, appealing members of public not to use banknotes for making garlands, decorating pandals and places of worship or for showering on personalities in social events, etc. Press Release issued in this regard is available at the following link:
https://rbi.org.in/web/rbi/-/press-releases/respect-your-banknotes-rbi-appeals-to-public-18026.

FAQs on Non-Banking Financial Companies

Credit Rating

32. When a companys Rating is downgraded, does it have to bring down its level of public deposits immediately or over a period of time? +

If Rating of an NBFC is downgraded, it has to bring down deposits to the level to which it is entitled to as per the new Credit Rating within a period of one year.

Retail Direct Scheme

Investment and Account holdings related queries

32. How can I sell securities through Retail Direct platform? +

You can sell securities by placing an offer (sell) order in the secondary market portal. You must have the security in your account before you can sell that security.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q32. Whether, any assets or liabilities for Indian party (i.e. domestic assets and liabilities) are to be included in the FLA return? +

Ans: Any domestic liabilities or assets (even if it is in foreign currency) should not be reported in the FLA return.

Domestic Deposits

III. Advances

32. Whether banks may charge interest below BPLR on loans above Rs.2.00 lakhs +

Yes. At present, loans upto Rs.2 lakhs carry the prescription of not exceeding the Benchmark Prime Lending Rate (BPLR) and on the loans above Rs.2 lakhs, banks are free to determine rate of interest subject to BPLR and spread guidelines. Keeping in view the international practice and to provide operational flexibility to commercial banks in deciding their lending rate, banks may offer loans at below BPLR to exporters or other creditworthy borrowers including public enterprises on the basis of a transparent and objective policy approved by the respective Boards.

Government Securities Market in India – A Primer

32. What are the various websites that give information on G-Secs? +

32.1. RBI financial market watch - /en/web/rbi/financial-markets/other-links/financial-market-watch

This site provides links to information on prices of G-Secs on NDS-OM, money market and other information on G-Secs like outstanding stock etc.

32.2. NDS-OM market watch https://www.ccilindia.com/OMHome.aspx

This site provides real-time information on traded as well as quoted prices of G-Secs, both in Order matching and Reporting segment. In addition, prices of When Issued (WI) (whenever trading takes place) segment are also provided.

32.3. Reported deals on NDS-OM: https://www.ccilindia.com/OMRPTDeals.aspx

This site provides information on prices of G-Secs in OTC market as reported. One can see chronological traded price levels and quantity in various securities.

32.4 FBIL – www.fbil.org.in

Financial Benchmark India Private Ltd (FBIL) was jointly promoted by Fixed Income Money Market & Derivative Association of India (FIMMDA), Foreign Exchange Dealers’ Association of India (FEDAI) and Indian Banks’ ‘Association (IBA). It was incorporated on 9th December 2014 under the Companies Act 2013. It was recognised by Reserve bank of India as an independent Benchmark administrator on 2nd July 2015.

The company is run by a Board of Directors, assisted by an oversight committee. The main object of the company is to act as the administrators of the Indian interest rate and foreign exchange benchmarks and to introduce and implement policies and procedures to handle the benchmarks. It also will make policies for possible cessation of any benchmark and to follow steps for ensuring orderly transition to the new benchmarks. FBIL will review each benchmark to ensure that the benchmarks accurately represent the economic realities of the interest that it intends to measure. It will take up/consider such other benchmarks as may be required from time to time by periodically assessing the emerging needs of the end -users.

32.5 FIMMDA - http://www.fimmda.org/

This site provides a host of information on market practices for all the fixed income securities including G-Secs. Accessing information from this site requires a valid login and password which are provided by FIMMDA to the eligible entities.

Foreign Investment in India

Q.32: Whether RBI’s approval is required for transfer of shares from NRI or an OCI to a non-resident other than an NRI or an OCI ? +

Answer: No

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

4. Can soiled, mutilated and imperfect banknotes be exchanged for value?

Yes. Such banknotes can be exchanged for value.

All you wanted to know about NBFCs

E. Collective Investment Schemes (CIS) and Chit Funds

32. If Chit Fund companies are financial entities, why are they not regulated by the Reserve Bank?

Chit Fund companies are regulated under the Chit Fund Act, 1982, which is a Central Act, and is implemented by the State Governments. In order to avoid duality of regulation, companies, doing the business of chit, as defined under Section 2(b) of the Chit Funds Act, 1982 are exempted from the provisions of Section 45-IA, 45-IB and 45-IC of the RBI Act, 1934. Thus, chit fund companies are not required to be registered with the Reserve Bank and would be registered and regulated by the State Government under Chit Funds Act, 1982. However, chit fund companies are subject to other provisions under Chapter IIIB of the RBI Act, 1934 and the Reserve Bank has prohibited chit fund companies from accepting deposits from the public in 2009. In case any Chit Fund is accepting public deposits, the Reserve Bank can prosecute such chit funds.

Retail Direct Scheme

Investment and Account holdings related queries

33. What is the process for bidding in primary auctions through the Retail Direct platform? +

After logging into the Primary Market Retail Direct platform, select the ‘Primary Market’ option beside the Dashboard, at the top of the page.
Select a security to bid from the ‘Auction Watch’ and enter the bid amount in the ‘Bid Entry’ window.
Individuals can fund their bid either at the time of bidding or at a later time, but before the closure of bidding/subscription window. Bids which are not funded as on the date of submission of bids to RBI will be cancelled.
For making payment for the bids, retail clients can use services like UPI (Transfer or Block) and Net Banking to transfer funds to a designated current account using Payment Gateways linked to the Online Portal.
Based on the allotment advice received as a part of the auction result, the allotments will be made to the individual investors.
In case of full allotment, each bidder will be allocated the entire Face Value for which bids were submitted. In case of partial allotment, a pro-rata allotment will be made to the bidder based on the partial allocation percentage determined in the auction.

For further details on the biding process, you may refer to the User Manual in the Help section of the Retail Direct Portal.

FAQs on Non-Banking Financial Companies

Credit Rating

33. Rating Agencies use different symbols for their Investment Grade Rating. Is it possible for the common man to understand the strength of the company on the basis of these symbols ? +

Reserve Bank of India has specified the minimum level of investment grade Rating for eligibility for acceptance of deposits from public by Equipment Leasing/Hire Purchase Finance Companies. However, the Rating Agencies have been advised to bring about uniformity in their Rating Levels for the common man to understand the meaning of a particular Rating.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q33. What is Direct Investment abroad by Indian companies? +

Ans: If the reporting Indian company invests in equity and/or participating preference shares of overseas company, under the Overseas Direct Investment Scheme in India, i.e. investment in Joint venture or wholly owned subsidiaries abroad, then it is considered as direct investment abroad of the Indian company.

NOTE: Registration guidelines and section-wise FAQs for further guidance to be file the FLA return are available in the FAQs section of the FLAIR portal (https://flair.rbi.org.in/fla/faces/pages/login.xhtml).

Domestic Deposits

III. Advances

33. Whether banks are permitted to charge interest below their declared BPLR under consortium arrangement to offer rate comparable to leader bank? +

No. The banks need not charge a uniform rate of interest even under a consortium arrangement. Each member bank should charge rate of interest on the portion of the credit limits extended by them to the borrowers subject to their BPLR.

Government Securities Market in India – A Primer

Annex 1 +

Specimen of a G-Sec

Foreign Investment in India

Q.33: Whether Pricing Guidelines apply for Indian company buying back shares in a scheme of merger/ de-merger/ amalgamation of Indian companies approved by NCLT/ competent authority for Buyback of shares/ Reduction of Capital by an Indian company ? +

Answer: Yes. Also, FC-TRS is required to be filed by the Indian company.

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

5. Where are soiled/mutilated banknotes accepted for exchange?

All banks are authorized to accept and exchange soiled banknotes for full value. They shall extend the facility of exchange of soiled/mutilated notes to non-customers also.

All branches of commercial banks are authorised to adjudicate mutilated banknotes (which are legal tender) and pay value for these, in terms of the Reserve Bank of India (Note Refund) Rules, 2009 [as amended by Reserve Bank of India (Note Refund) Amendment Rules, 2018].

Small Finance Banks (up to two years from the commencement of their banking business) and Payment Banks may exchange mutilated and imperfect/defective notes at their option.

All you wanted to know about NBFCs

F. Money Circulation/Multi-Level Marketing (MLM)/ Ponzi Schemes/ Unincorporated Bodies (UIBs)

33. There are some companies like Multi-Level Marketing companies, Direct Selling Companies, Online Selling Companies. Do they come under the purview of the Reserve Bank? +

No, Multi-Level Marketing companies, Direct Selling Companies, Online Selling Companies do not fall under the purview of the Reserve Bank. Activities of these companies fall under the regulatory/administrative domain of respective state government. The provisions of the Consumer Protection Act, 2019 and the Consumer Protection (Direct Selling) Rules, 2021 may be referred. The list of regulators and the entities regulated by them are provided in Annex I.

FAQs on Non-Banking Financial Companies

Credit Rating

34. What is the period of validity of a companys Rating ? +

The Reserve Bank has stipulated that the Credit Rating should be obtained by the NBFCs once in a year. Normally, the Credit Rrating of a company is valid till it is reviewed by the concerned Rating Agency.

Retail Direct Scheme

Investment and Account holdings related queries

34. How many bids can I place in primary auctions? +

You can submit only one final bid per security in each primary auction of dated G-Sec, T-Bills and SDLs.

Domestic Deposits

III. Advances

34. What should be penal rate of interest? +

With effect from October 10, 2000, banks have been given freedom to formulate transparent policy for charging penal interest with the approval of their Board of Directors. However, in the case of loans to borrowers under priority sector, no penal interest should be charged for loans up to Rs.25,000. Penal interest may be levied for reasons such as default in repayment, non-submission of financial statements, etc. However, the policy on penal interest should be governed by well-accepted principles of transparency, fairness, incentive to services the debt and genuine difficulties of customers.

Government Securities Market in India – A Primer

Annex 2 +

List of Primary Dealers (As on April 01, 2020)

STANDALONE PRIMARY DEALERS	BANK PRIMARY DEALERS
ICICI Securities Primary Dealership Limited ICICI Centre H.T.Parekh Marg Churchgate Mumbai- 400 020 Phone: (022) 22882460/70, 66377421	Bank of America, N.A. One BKC, ‘A’ Wing ‘G’ Block, Bandra Kurla Complex Bandra (E), Mumbai – 400 051 Phone: 022-66323111
Morgan Stanley India Primary Dealer Pvt. Ltd. 18F / 19F One Indiabulls Centre Tower 2, Jupiter Mills Compound Elphinstone Road Mumbai - 400013 Phone : (022) 61181000 Fax : (022) 61181011	Bank Of Baroda Specialised Integrated Treasury 4th & 5th Floor, Baroda Sun Tower, C-34, G-Block, Bandra Kurla Complex Bandra East, Mumbai-400 051 Phone:(022) 66363636 / 67592705
Nomura Fixed Income Securities Pvt. Ltd. Ceejay House, 11th Level Plot F, Shivsagar Estate Dr.Annie Besant Road Worli Mumbai - 400 018 Phone : (022) 40374037 Fax : (022) 40374111	Canara Bank Domestic Back Office Integrated Treasury Wing VI Floor, Canara Bank Building C-14, G Block, Bandra Kurla Complex Bandra East Mumbai- 400 051 Phone: (022) 26725126, 123
PNB Gilts Ltd. 5, Sansad Marg New Delhi- 110 001 Phone: Mumbai - (022) 22693315/17 New Delhi - (011) 23325751,22693315/17	Citibank N.A FIFC, 12th floor, C-54 and 55, G block, Bandra Kurla Complex, Mumbai – 400 051. Phone:(022) 6175 7187
SBI DFHI Ltd 3rd Floor, Voltas House, 23, J.N.Heredia Marg, Ballard Estate, Mumbai- 400 001 Phone:(022) 22625970/73, 22610490, 66364696	Union Bank of India Treasury Branch, Central Office, Union Bank Bhavan, 3rd Floor, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai 400 021 Ph 022-22892118/22892102
STCI Primary Dealer Limited Marathon Innova, Marathon Nextgen Compound, Off Ganpatrao Kadam Marg, Lower Parel(W), Mumbai- 400 013 Phone:(022) 30031100, 66202261/2200	HDFC Bank Ltd. Treasury Mid Office, 1st Floor,HDFC Bank House Senapati Bapat Marg, Lower Parel Mumbai- 400 013 Phone:(022) 24904702/4935/3899, 66521372/9892975232
Goldman Sachs (India) Capital Markets Pvt. Ltd. 951-A, Rational House, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025 Phone : (022) 66169000	Hongkong and Shanghai Banking Corpn. Ltd.(HSBC) Treasury Services 52/60, Mahatma Gandhi Road Mumbai- 400 001 Phone:(022) 22681031/34/33, 22623329/22681031/34/38
	J P Morgan Chase Bank N.A, Mumbai Branch J.P. Morgan Tower Off C.S.T. Road, Kalina Santacruz (East) Mumbai - 400 098 Phone -61573000 Fax- 61573990 & 61573916
	Kotak Mahindra Bank Ltd. 27BKC, 5th Floor Plot No. C-27, G-Block Bandra Kurla Complex Bandra East Mumbai 400 051. Phone:(022) 6659 6022/6454, 66596235/6454
	Standard Chartered Bank Financial Markets Financial Market Operation Crescenzo, 5th Floor Plot no. C-38 & 39, G – Block Bandra Kurla Complex Mumbai – 400 051 Phone : (022) 61158893
	Axis Bank Ltd. Treasury Operations Corporate Office, 4th Floor, Axis House Bombay Dyeing Compound Pandurang Budhkar Marg Worli, Mumbai - 400 025 Phone- (022) 24254430, 24254434 Fax- (022) 24252400 / 5400
	IDBI Bank Limited IDBI Tower, Cuffe Parade Mumbai- 400 005 Phone- (022) 66263351
	Deutsche Bank AG C-70, G Block, Bandra Kurla Complex Mumbai-400051 Phone: (022) 71804444
	Yes Bank Limited Yes Bank Tower, IFC 2, Elphinstone (W), Senapati Bapat Marg, Mumbai-400013 Phone: (022) 33669000

* Bank PDs are those which take up PD business departmentally as part of the bank itself.

** Stand alone PDs are Non Banking Financial Companies (NBFCs) that exclusively take up PD business.

Update to the list of Primary dealers is available on the RBI website at /en/web/rbi/citizen-corner/primary-dealers

Foreign Investment in India

Q.34: What are the guidelines for reporting of transfer of shares ? +

Answer: Form FC-TRS is required to be filed for transfer of capital instruments by way of sale in accordance with FEMA 20(R), from:a person resident outside India holding capital instruments in an Indian company on a repatriable basis to a person resident outside India holding capital instruments on a non-repatriable basis;a person resident outside India holding capital instruments in an Indian company on non-repatriable basis to a person resident outside India holding capital instruments on repatriable basis;a person resident outside India holding capital instruments in an Indian company on repatriable basis to a person resident in India;a person resident in India holding capital instruments in an Indian company to a person resident outside India holding capital instruments on repatriable basis.Sale of capital instruments on a recognized stock exchange by a person resident outside India as prescribed in regulation 10(3) of FEMA 20(R) has to be reported by such person in Form FC-TRS.FC-TRS is not required for:for transfer of shares of an Indian company from a non-resident holding the shares on non-repatriable basis to a resident and vice versa.for transfer of shares from a person resident outside India holding capital instruments in an Indian company on a repatriable basis to a person resident outside India holding capital instruments on a repatriable basisfor transfer of shares by way of gift.The onus of reporting is on the resident (transferor or transferee) or the person resident outside India holding capital instruments on a non-repatriable basis, as the case may be. The form FC-TRS has to be filed with the AD bank within sixty days of receipt/ remittance of funds or transfer of capital instruments whichever is earlier.II. Foreign Portfolio Investment

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

6. How much value would one get in exchange of imperfect banknotes?

The value of an imperfect note may be paid for full value/half value under rules as specified in Part III of Reserve Bank of India (Note Refund) Rules, 2009 [As amended by Reserve Bank of India (Note Refund) Amendment Rules, 2018] available in our website under www.rbi.org.in → Publications → Occasional.

All you wanted to know about NBFCs

F. Money Circulation/Multi-Level Marketing (MLM)/ Ponzi Schemes/ Unincorporated Bodies (UIBs)

34. What are money circulation/Ponzi/multi-level marketing schemes? +

While some of these terms are not formally defined, generally, the money circulation, multi-level marketing / chain marketing or Ponzi schemes are schemes promising easy or quick money upon enrollment of members. Income under multi-level marketing or pyramid structured schemes do not come from the sale of products they offer as much as from enrolling more and more members from whom hefty subscription fees are taken. It is incumbent upon all members to enroll more members, as a portion of the subscription amounts so collected is distributed among the members at the top of the pyramid. Any break in the chain leads to the collapse of the pyramid, and the members lower in the pyramid are the ones that are affected the most. Ponzi schemes are those schemes that collect money from the public on promises of high returns. As there is no asset creation, money collected from one depositor is paid as returns to the other. Since there is no other activity generating returns, the scheme becomes unviable and impossible for the people running the scheme to meet the promised return or even return the principal amounts collected. The scheme inevitably fails, and the perpetrators disappear with the money.

FAQs on Non-Banking Financial Companies

Credit Rating

35. If the company questions the Rating given to it, to whom can it appeal ? +

A. The Credit Rating is the opinion of the Agency about the companys ability to service its debt. The company has the discretion to accept the Rating or reject it. There is no appellate authority.

Retail Direct Scheme

Investment and Account holdings related queries

35. What amount should I pay at the time of placing a bid in primary auctions? +

For dated G-Sec, T-Bills and SDLs, the amount per unit will be based on the indicative price of the security, the accrued interest and a mark-up.

For SGBs, the funding will be based on the Issue Price declared by RBI for that particular issue.

Domestic Deposits

III. Advances

35. Consequent on the deregulation of interest rate on advances over Rs.2 lakhs with effect from October 18, 1994, whether banks should pay DICGC Guarantee fees in respect of priority sector advances? +

As regards DICGC Guarantee fees, the banks have been given discretion to absorb or to pass on the guarantee fees to the borrower in case of advances over Rs.25,000/- excluding advances to weaker sections. Banks should bear DICGC guarantee fees in respect of advances upto Rs.25,000/- and all advances to weaker sections.

Government Securities Market in India – A Primer

Annex 3 +

Sample of Auction Calendar

Foreign Investment in India

II. Foreign Portfolio Investment

Q.35: What are the regulations regarding investments on the stock exchanges in India +

Answer: Foreign Portfolio Investors (FPIs) registered in accordance with the provisions of SEBI (FPI) Regulations and NRIs/ OCIs can make investment on the stock exchanges in India, subject to the individual and aggregate limits prescribed in schedules 2 and 3, respectively of FEMA 20(R).III. Investment in other securities

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

7. What types of banknotes are eligible/not eligible for payment under the Note Refund Rules?

The details are available on our website at the following link: www.rbi.org.in >> Currency Management >>Notifications.

A summary of the old (2009) and amended NRR (2018) is as under:

Note Refund Rules - Amended

Sr. No.	As per Old NRR (2009)	As per Amended NRR (2018)
1	Notes up to ₹20 denominations i) area of single largest undivided piece of the note > 50% - Full value ii) area of largest undivided piece of the note =/< 50% - Reject	No change
2	Notes of ₹50/- and above denominations i) If area is less than 40% - Reject ii) If the area is equal to or more than 40% and less than or equal to 65% - Half value iii) If the area of the single largest undivided pieces is more than 65% - Full value	Notes of ₹50/- & above denominations i) If area is less than 40% - Reject ii) If the area is more than or equal to 40% and less than or equal to 80% - Half value iii) If the area of the single largest undivided pieces is more than 80% - Full value

All you wanted to know about NBFCs

F. Money Circulation/Multi-Level Marketing (MLM)/ Ponzi Schemes/ Unincorporated Bodies (UIBs)

35. Is acceptance of money under Money Circulation/Multi-level Marketing/Pyramid structured schemes allowed? Does the Reserve Bank regulates such schemes? +

No. Acceptance of money under Money Circulation Schemes, by whatever name called, is not allowed as acceptance of money under those schemes is a cognizable offence under the Prize Chit and Money Circulation (Banning) Act, 1978, and are banned. The Reserve Bank has no role in implementation of this Act, except advising and assisting the Central Government in framing the Rules under this Act.

FAQs on Non-Banking Financial Companies

Liquid Asset requirement

36. Whether the liquid assets are required to be maintained only on the principal amount of public deposits or the interest accrued on such deposits should be included in the deposit liabilities? +

The liquid assets are required to be maintained in relation to the deposit outstanding together with the amount of interest accrued but not paid.

Domestic Deposits

III. Advances

36. Whether interest on loans and advances could be charged at varying periods ranging from monthly rests to yearly rests? +

With effect from April 1, 2002 banks have been charging interest on loans and advances at monthly rests except in the case of agricultural advances (including short term loans and other allied activities) where the existing practice continues.

Retail Direct Scheme

Investment and Account holdings related queries

36. At what price will the securities be allotted in primary auctions? +

At the weighted average price of the successful bids in the auction.

Government Securities Market in India – A Primer

Annex 4 +

Sample of Auction notification

Foreign Investment in India

III. Investment in other securities

Q.36: Can a person resident outside India invest in Government Securities/ Treasury bills/ corporate debt/ other securities ? +

Answer: Foreign Portfolio Investors (FPIs), Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), Foreign Central Banks, Multilateral Development Bank, Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds and Pension Funds which are registered with SEBI Long Term Investors may invest in other securities as specified in Schedule 5 to Notification No FEMA 20.

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

8. What if a banknote is found to be non-payable?

Non-payable banknotes are retained by the receiving banks and sent to the Reserve Bank where they are destroyed.

All you wanted to know about NBFCs

F. Money Circulation/Multi-Level Marketing (MLM)/ Ponzi Schemes/ Unincorporated Bodies (UIBs)

36. What if someone operates such a scheme? +

Any information/grievance relating to such schemes should be given to the police / Economic Offence Wing (EOW) of the concerned State Government or the Ministry of Corporate Affairs. If brought to the notice of the Reserve Bank, the same shall be informed to the concerned State Government authorities.

FAQs on Non-Banking Financial Companies

Liquid Asset requirement

37. What is the ratio of liquid asset requirement and the base of deposits to which the liquid asset are linked ? +

The minimum level of liquid asset between January 1 and March 31, 1998 remains unchanged at 10 per cent and 5 per cent of the regulated deposits outstanding as on September 30, 1997 for equipment leasing/hire purchase finance companies and loan/investment companies respectively, depending upon their Registration status under erstwhile Registration Scheme. However, on and from April 1, 1998, the requirement of liquid assets would be uniform for all these NBFCs except RNBCs at 12.5 per cent of the "public deposits". The ratio will be 15 per cent of public deposits on and from April 1, 1999. For RNBCs, the ratio shall remain unchanged at 10 per cent of the deposits outstanding.

Retail Direct Scheme

Investment and Account holdings related queries

37. Is markup a fee charged for investing through the Retail Direct portal? +

No. Markup is not a fee charged by RBI. It is refundable depending upon the price at which the bids are allotted in the auction.

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Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Domestic Deposits

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Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

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Government Securities Market in India – A Primer

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Indian Currency

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Core Investment Companies

D. Miscellaneous:

Portfolio Investment Positions (PIP) by Counterpart Economy (formerly CPIS) – India

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All you wanted to know about NBFCs

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FAQs on Non-Banking Financial Companies

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Retail Direct Scheme

Investment and Account holdings related queries

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

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Government Securities Market in India – A Primer

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Indian Currency

C) Different Types of Bank Notes and Security Features of banknotes

Core Investment Companies

D. Miscellaneous:

Portfolio Investment Positions (PIP) by Counterpart Economy (formerly CPIS) – India

UPDATED: Dec 01, 2023

Special instructions for banks

All you wanted to know about NBFCs

D. Depositor Protection Issues

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

FAQs on Non-Banking Financial Companies

Credit Rating

Retail Direct Scheme

Investment and Account holdings related queries

Domestic Deposits

III. Advances

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

Accounts frozen, lien marked etc.

Government Securities Market in India – A Primer

Foreign Investment in India

Indian Currency